U.S. oil companies only halfway done tapping Wall Street cash this year

By Collin EatonHouston Chronicle

Published 12:43 pm, Monday, April 4, 2016

HOUSTON - Even after raising $10 billion in recent months, U.S. oil companies could collect nearly twice that amount from stock-market investors as the year goes on, a Credit Suisse investment banker behind many of the deals says.

For battered domestic drillers, capital markets “are more open than meets the eye,” said Rob Santangelo, whose team at Credit Suisse has helped run at least half of the oil-company stock sales so far this year. “It’s an optimistic note about how the industry has weathered what’s come at it so far.”

Crude prices plunged to a 12-year low in January amid fears of an economic slowdown in China and a lingering oil-market oversupply, which, like last year, created the perfect conditions for cash-strapped drillers to call on stock-market investors. In February, U.S. oil companies recorded the biggest one-month infusion of capital-market funds in history, as drillers attempted to gird themselves for a longer period of low crude prices.

Oil companies raised some $18 billion from investors in 2015, with the bulk of the stock sales coming just before crude prices climbed up from what the market believed was the bottom price. This year, companies could raise $15 billion to $20 billion, Santangelo says.

It got more difficult to raise money last year after crude prices fell from around $60 to $40 a barrel. And it’s true many drillers that raised money last year aren’t couldn’t tap investors any more. But a slew of industry observers have gotten one thing wrong: Capital markets never closed for oil companies, Santangelo said.

“The appetite is as strong now as it has been throughout the last year and a half,” he said. “If you look through the last 16 months to the OPEC meeting, I could find windows in there that one to three month periods that were relatively good and one to three month periods that were relatively bad” for raising capital.

Rather, oil company stock sales, he said, appear to be somewhat seasonal, with issuances coming in the first few months of the year after annual budget planning has been done. Plus, crude prices had dropped to new lows in the first few months of both 2015 and 2016.

“That pressed people to be more realistic and inward looking about what the right capitalization was,” Santangelo said.

So what’s next? There will be more “opportunistic financings,” he said, though a lot of those have already come and gone. More of the remaining offerings this year will come because of specific catalysts, like raising money for an acquisition.

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Stock prices for companies have performed well after crude prices rose from around $30 to $40 in recent weeks, and even though some are nervous about a second drop in oil prices, investors are generally more confident this rally is supported by fundamental shifts in supply and demand.

“The last time oil started to move up but you really hadn’t seen production start to roll over,” he said. “Now, maybe those fundamentals haven’t run their course, but you can see the trajectory (of supply and demand) now.”